Webcast--Save the Date
Three Keys to Successful S&OP
Tuesday, January 23, 2007
10am Pacific, 1pm Eastern
Adam Coonin, Vice President and David Williams, Director
Hitachi Consulting
Watch for an email invitation
Sponsor: Steelwedge Software

7th Annual World Class
Sales Forecasting Management Conference
When: May 15-17, 2007
Where: Knoxville Marriott Hotel

VIEW 2006 CONFERENCE SCHEDULE

Previous Webcast--
Sales Forecasting—
How To Improve Collaboration
Tuesday, July 25, 2006
1pm Eastern, 12noon Central,
10am Pacific
Dr. Tom Mentzer,
Ph.D. Marketing & Logistics
Dr. Mark Moon,
Ph. D, Marketing & Logistics
University of Tennessee
Click here to view recording

Previous Webcast--
Selling Beyond the
Sales Force--
Leveraging Technology
to Improve Sales Effectiveness
Tuesday, July 11, 2006
1pm Eastern, 12noon Central, 10am Pacific
Dr. Jag Sheth, Marketing Professor Emory University
Click here to view recording

Industry Blogs
Here are the Industry Blogs that
we watch, and you might want to:

www.crmblog.org
www.supplychainer.com
www.andyonenterprisesoftware.com
www.siliconvalleywatcher.com
blogs.ittoolbox.com/crm
blogs.ittoolbox.com/supplychain
www.vics.org/blog

Steelwedge Podcasts
•  OEM Forecasting Challenges
•  EPPM
•  S&OP-Challenges
•  S&OP-Design, Process

From the Press
TMC.net
June 2006
Steelwedge Offers Tellabs Sales, CRM Help
By David Sims

BusinessWeek Online
June 2006
The Real Disaster: Inadequate Preparation
By Kevin O'Marah

Chief Supply Chain Officer June2006
S&OP Customers Go Cross-Functional and Show Results
By Jacqueline Emigh

Sales and Operations Planning (S&OP) for OEMs
in a Global, Outsourced Manufacturing Environment

By Dr. J. Tom Mentzer, University of Tennessee, and
Glen Margolis, Founder & CEO, Steelwedge Software, Inc

Sales and Operations Planning (S&OP) is designed to bring together key departments (e.g., finance, production, sales, marketing, transportation, and procurement) to develop a single business plan that allows companies to balance supply and demand, and to better manage corporate performance.
While S&OP is an important process for any type of manufacturing organization, companies that have outsourced their manufacturing to strategic partners (Original Equipment Manufacturers or “OEMs”) face unique challenges and require distinct processes.
Moreover, globalization and margin pressures are driving OEM organizations
to develop increasingly sophisticated S&OP processes. Consumer products organizations such as Nike and Reebok, which adopted an outsourced approach long ago, and leading high technology manufacturers such as Juniper Networks, Tellabs, and Cisco Systems are being forced to respond to these pressures.

OEM Challenges

For OEMs, S&OP is a collaborative process that highlights tradeoffs based on constraints in supply. They use the S&OP process to work with their contract manufacturing partners in collaboratively developing a build plan that maps better to expected demand for existing and new products. In a bid to become more responsive, OEMs are shifting from rigid monthly processes to flexible monthly cycles that incorporate daily and weekly updates triggered by exceptions such as expected shortages or unexpected demand.

The first step toward successful S&OP processes for OEMs is to develop a consensus baseline forecast which enables an OEM to easily refine the consensus forecast by incorporating the various departmental plans such as sales pipeline, new product introduction plan, promotions plan etc and their underlying assumptions. This forecast is then constrained based on careful consideration of supplier production and inventory limitations.

The resulting ‘Sales and Operations Plan’ is then reviewed by Executive Management and refined based on strategic supply and demand considerations and analysis of alternate scenarios. The final Sales and Operations Plan is then positioned as the corporate business plan for use across the organization. This “Enterprise Plan of Record” is used for tracking and waterfalling performance during subsequent planning cycles. This planning process also enables the OEM to update their build plan easily on an ongoing basis–monthly, even weekly— so it is always in step with the market and supplier conditions (see Figure 1 below).

Figure 1: Sales & Operations Planning Schematic

New Approaches

The “Enterprise Plan of Record” requires a new approach that simplifies the Sales and Operations planning process and enables OEMs to manage complex partner collaboration processes, plan more frequently, and respond to ever changing market conditions in a timely manner. It represents a single repository of past, present and future forecasts, plans and assumptions across the entire OEM enterprise. It reconciles the disparate aspects of each functional plan into a single model, while retaining the integrity and detail needed to turn business strategy into functional action plans.

This new approach is based on the concept of the “Planning Hub.” The planning hub refers to a single system that drives all enterprise planning processes – sales forecasting, demand planning, Sales and Operations Planning, corporate performance management, revenue, and margin planning. Because the purpose, usage, and requirements of a “Planning Hub” are fundamentally different than the transactional systems offered by today’s ERP vendors, a new breed of vendors – Steelwedge Software, Inc. being a leading example - is emerging to address these requirements.

These solutions harness the power of mature and ubiquitous desktop solutions such as Microsoft Excel Office and leverage Web Services to deliver business-process focused enterprise planning solutions with far lower ownership costs, superior flexibility, true interoperability, and real ease-of-use. The best in class solutions required to support the collaborative planning and approval processes integral to OEM S&OP must include end-to-end workflow incorporating the capability to monitor, track and report on approval processes via e-mail. They must also provide external Electronic Manufacturing Service providers (“EMS providers”) with a secured view of their specific committed build plans, which typically become legally-binding archives of inter-company transactions and trigger Purchase Orders.

The Process

Each functional team views the plan in its own terms-- units, dollars or margins-- from lowest product detail to top-line revenue forecast. Finance teams can continuously determine alignment with business plans for revenue/margin outcomes, create alternative business plan scenarios, and conduct modeling exercises. Differing price, product mix and sales assumptions can be used to determine business plans that maximize profits, not only revenues. With a consolidated, viable operating plan for the OEM--executives, managers and planners are able to consistently drive results, measure supplier performance and ensure compliance.

Once a demand plan is created based on the consensus forecast, it enables
the operations organization of the OEM to create possible build plan scenarios, incorporating the contractual capacity including up and down flexibility and critical component allocations. Based on feedback from EMS organizations, a rough cut supply plan is then created and compared to the demand plan and gaps are identified. The S&OP process meeting is used to identify strategies for resolving gaps, making trade-offs, and developing a plan that is alignment with corporate strategy.

The contract manufacturer is a part of the collaborative S&OP process to create a rough-cut build plan and to reduce the gap between a rough cut build plan and the consensus demand plan.
OEM’s use both process and plan-based metrics to manage their S&OP process and provide performance feedback. Examples of process metrics include cycle time to develop a forecast, forecast participation, EMS response rate, and number of exceptions. Typical plan metrics include S&OP plan accuracy, Annual Operating Plan vs. current S&OP plan (units, revenue, margin), weighted forecast error (WMAPE) by functional contributed, supply-demand exception rate, and, order fill rate. These metrics are typically mapped to dashboards that provide each S&OP participant with metrics and view of the data relevant to them. The performance dashboards – along with associated detail information – are typically emailed to participants on a scheduled basis.

The S&OP process for OEMs outlined above is distinct in both focus and execution in a number of ways (see Table 1 below). For example, while supply visibility and metrics for integrated manufacturers is typically accessible and straightforward, enabling visibility and developing mutually useful metrics for OEM’s and their partners requires a much higher level of foresight and effort. Moreover, complex contractual agreements and fast moving planning activities mean that having a Plan of Record which documents assumptions, agreements, and activities is a legal and management imperative.

Table 1: Sales & Operations Planning for Integrated vs. OEM Manufacturers

Case Study: Enterasys Networks, Inc.

Enterasys, a dynamic $360 million OEM of secure enterprise networks serving 25,000 customers globally in financial services, manufacturing, healthcare, education and government segments, set an overall objective for its S&OP process --to manifest and sustain an enterprise program for developing, approving, and disseminating meaningful demand forecasts that facilitate Enterasys decision-making--and five specific goals:

1. Increase demand predictability and translate it into supplier flexibility
2. Reduce costs related to safety stock, E&O inventory, and order expediting
3. Reduce administrative, manufacturing costs, and freight expediting costs
4. Improve customer service through improved on-time delivery and higher line and order fill rates; achieve preferred vendor status
5. Automate labor-intensive manual planning processes

The Enterasys process and technology team redefined its S&OP process in collaboration with Steelwedge so that each stakeholder had very clear and concise roles and responsibilities:

Table 2: Enterasys Networks Sales & Operations Planning Process Roles

By contributing to a single, integrated planning process, each stakeholder participates in the enterprise planning process based on a uniform set of assumptions. In doing so, Enterasys Networks executives have observed the following benefits:

• Analysts, Planners, and Managers are spending more time analyzing information and learning from the past rather than chasing data. By anticipating the supplier capacity issues during its S&OP planning process, Enterasys’ planners and managers are able to drive inventory and sales more effectively which mitigates the risk of missed revenue as well as inventory accumulation.

• The Management Team is able to align business strategy with operational activities by accessing and analyzing actionable business information such Gross Margins, Inventory Exposure, and Revenue Tracking on demand. This not only facilitates faster decisions but it also enables complete evaluation of alternatives when aligning demand and supply.

• The S&OP Champion is steering demand in response to market and sales conditions thus enabling a proactive approach to revenue management.

The bottom line benefits for OEMs such as Enterasys Networks include significant profit improvements, improved order fill rates, and greatly enhanced organizational communication.

About the authors:

Dr. J. Thomas Mentzer is Distinguished Professor of Marketing and Transportation and Department head at the University of Tennessee, and the former President of the Council of Logistics Management (CLM) – a 15,000 member industry organization whose members are primarily executives in the manufacturing and distribution industries. He is also the author of the leading textbook on forecasting as well as hundreds of papers on the topic of Enterprise Planning. Dr. Mentzer also founded the University of Tennessee Sales Forecasting Forum, which includes over 200 executives from Fortune 1000 firms such as P&G, Coke, Tellabs, Lucent, Eastman Chemical, and Whirlpool.

Glen Margolis is Founder & CEO of Steelwedge Software. Glen is a veteran of multiple startups and founded a successful contract manufacturing organization. He was a senior supply chain strategy consultant with Mercer Management Consulting and Ernst & Young. Glen holds a Bachelor’s in Engineering from the Webb Institute and a Masters in Finance from Harvard University.